What's the difference between Trading & Investing?

People often use the terms “Trading” and “Investing” interchangeably, but these two strategies are not the same.

Trading

Trading involves buying and selling financial instruments, such as stocks, bonds, currencies to make profits on a frequent basis. Traders keep an eye on the markets and try to catch the short-term waves of prices going up and down. Within minutes, hours or days, traders will buy or sell to either take a profit or protect themselves from a loss. Traders generally aren't focused on the long-term potential of a company; they are looking for opportunities to buy and sell over a short time horizon to make a profit.

Investing

Investors are like long distance runners. They're looking at the big picture and seeking larger returns over a longer stretch of time. Investors aren’t focused on the daily highs and lows of stock prices, they buy and hold financial instruments, such as stocks, bonds, mutual funds, believing in the potential for these investments to grow over time. Investors aim to cash in on the increased value of their investments over time, and they may also enjoy regular paydays in the form of dividends - a slice of the company’s profits in cash or additional stocks.

Today’s Takeaway:

Although Traders and Investors have different objectives, most traders understand the importance of letting their money work for them in the safety net of long-term investments. They’ll have money safely stored in investments, completely separated from their trading activity.

Investing should be a foundational step in your wealth portfolio. Investing small amounts consistently over time in low-risk assets will give you the freedom to explore more diverse options for building assets for the future.